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WASHINGTON (Reuters) - The government on Friday said it has resolved a three-year internal debate on how strongly to press countries like China to protect workers' rights and the environment in negotiations on treaties to protect U.S. foreign investment.

The U.S. State Department and the U.S. Trade Representative's office issued a joint statement outlining a so-called "model BIT" (Bilateral Investment Treaty) that will be used as a template in future negotiations.

The new terms of the treaty include demands foreign governments not relax environmental or labor laws to draw investment by U.S. companies. The debate over the terms followed the changeover in government from the administration of former President George W. Bush.

U.S. business groups applauded the long-awaited decision but worried the stronger demands could make investment pacts too hard to negotiate. Labor groups acknowledged a step forward, but said the provisions were little more than "paper commitments" because they could not be enforced.

The government's statement said new language will "U.S. companies benefit from a level playing field in foreign markets, providing effective mechanisms for enforcing the international obligations of our economic partners, and creating stronger labor and environmental protections."

The United States and other countries negotiate bilateral investment treaties to protect their companies against potentially unfair foreign government actions.

There are some 3,000 BITS in force around the world, of which the United States is party to 40.

"We need to do everything we can to break down barriers to America's world-class goods and help U.S. companies compete in markets around the world. The new model BIT will help us do that," Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said.

The Emergency Committee for American Trade, a U.S. business group, welcomed the administration's announcement and called for quick resumption of investment talks with China, India, Vietnam and Mauritius that have been on hold.

But the group, whose members range from heavy equipment manufacturer Caterpillar to publisher McGraw-Hill, said stronger U.S. labor and environment demands in the model BIT "could be counterproductive" because they go further than what other developed countries demand.

A spokeswoman for Senator Orrin Hatch, the top Republican on the Senate Finance Committee, echoed that concern.

The new labor and environment obligations "are unjustified on trade policy grounds and could inhibit countries like China, Brazil and India from actually concluding bilateral investment treaties with the United States," Hatch aide Julia Lawless said.

Critics say the treaties, which must be approved by the Senate, encourage U.S. companies to move production overseas and allow them too easily to challenge government regulations that could hurt the value of their investments.

One of the most outspoken critics, Lori Wallach, director of Public Citizen's Global Trade Watch, said the new model BIT was basically the same as "the deeply flawed 'old' model."

"At a time when multinationals like Chevron are using BITs to evade justice and get out of environmental remediation obligations, it is unthinkable that an Obama administration - post-BP oil spill, post-Wall Street crash - would privilege the rich at the expense of the 99 percent," Wallach said.

Thea Lee, deputy chief of staff for the 12-million-member AFL-CIO labor federation, said her group appreciated the stronger labor and environmental provisions but was "deeply disappointed" they could not be enforced through dispute settlement mechanisms of the BITs.

"On balance, the new model BIT remains lopsided in terms of granting overly broad rights and protections to multinational corporations - threatening democratic decision-making processes and outcomes - without requiring even the most basic minimum standards of responsible behavior with respect to labor and the environment," Lee said.

The Bush administration launched BIT negotiations with China and Vietnam in its waning months. Responding to concerns raised by Democrats and labor groups, the incoming Obama administration put talks on hold and instituted a review of the U.S. model BIT in February 2009.

The U.S. Trade Representative's office, in a Fact Sheet, said the 2012 model BIT expands labor and environmental obligations in "four important ways."

It requires governments not to "waive or derogate" from their own labor and environmental laws to attract investment or to fail to effectively enforce those laws to attract investment.

U.S. BIT partners also must reaffirm their commitment to core International Labor Organization principles, such as the rights of workers to organize and bargain collectively, and recognize the importance of international environmental agreements, such as those protecting endangered species.

The new BIT model also contains "more detailed and extensive consultation procedures (on labor and environment) than those applicable under the 2004 model BIT," USTR said.

The Obama administration also responded to growing concerns about the role of foreign "state-owned enterprises" in international trade by including provisions in the model BIT to help level the playing field for U.S. companies.